The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must not leave the need for any fiscal adjustments to the stage where “things get a bit dicey”, a governance reformer advocated yesterday in backing the IDB.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, told Tribune Business that the Inter-American Development Bank’s (IDB) call for the Government to make any necessary Budget and medium-term Fiscal Strategy alterations in response to changing conditions and circumstances was “sound”.

With the Davis administration forecasting a 75 percent or $389m year-over-year decline in the 2023-2024 fiscal deficit, as part of its strategy for producing a Budget surplus the following fiscal year, he agreed that it should not unduly delay any changes that become necessary but added that moving in the “general” direction of the consolidation path laid out will be sufficient.

“Anything that threatens that on a fundamental level, where it is recognised there is going to be a shortfall in revenue or over-spending and a need for additional spending, the Government must make early adjustments,” Mr Edwards told this newspaper.

“Despite maybe not making the 0.9 percent of GDP deficit target, which is what the IMF has promulgated, I think the general trend of moving the deficit downwards vis a vis two to three years ago and making progress towards a surplus is very important at this time.

“It’s not necessary in the grand scheme of things that we need a balanced Budget at this time, but having regard to the creditworthiness of the country and the debt circumstances and the impact that is having on the country, moving in that direction is going to change the whole circumstance,” he added.

“It will change the way the rating agencies see the country or have an impact on the country’s ability to access additional capital borrowing if needed.” The IDB, in in its latest quarterly Caribbean quarterly bulletin that focused on the region’s debt issues, praised the Government for acting “soundly” to address fiscal concerns by developing a medium-term debt strategy and implementing operational reforms via the Revenue Enhancement Unit and Debt Management Office.

However, it said the Davis administration’s fiscal targets for 2023-2024 and upcoming years “seem ambitious”, and called upon the Government to act early and swiftly if any changes were required to keep The Bahamas’ public finances on the consolidation path.

The current Budget expectation is that revenues will increase 14 percent above those in the revised budget for fiscal year 2022-2023, equivalent to two additional percentage points of GDP in tax revenue in a single year, and that total expenditures will continue a downward trend but recurrent expenditure will increase by 0.4 percent of GDP,” the IDB added.

“This implies a primary fiscal surplus rising from $39m to $486m (3.3 percent of GDP). In this context, the fiscal goals set for this year should be monitored early in order to react swiftly by adjusting not only the budget goals but also the medium-term fiscal strategy.”

Mr Edwards, agreeing with this analysis, said: “If you recognise something is not going to come in at the position you expect it to, make the early adjustment, monitor what’s going to happen, and not leave it to the back end when things get a bit dicey. However, you look at it, it’s good advice that should be taken up by the policymakers.

“If you look at it in election cycles, 2024 will be the third year of this administration and we understand from experience this is when administrations find themselves under pressure to bring projects to fruition, deliver on promises and meet additional spending demands, so there is going to be pressure on the need for discipline.

“What the IDB is basically saying is be very careful, be very strategic, and do what is necessary to maintain discipline in the short to medium-term so nothing falls out of place and the country experiences the kind of outlook that you foreshadowed when the Budget was presented last year.”

The IDB suggested that The Bahamas could benefit from targeting the 66 percent debt-to-GDP ratio that the IDB has recommended all Caribbean tourism-based economies adopt. “Given the efforts that have been made to regain market confidence, the Government might benefit from adjusting its fiscal framework towards one more in line with the history and recent structure of the Bahamian economy,” it added.

“An adjustment of that kind could be complemented with the introduction of an automatic adjustment mechanism like the one implemented in Jamaica. Moreover, the necessity and the opportunity to build fiscal buffers could not be greater now that the Bahamian economy is in the middle of a tourism boom.

“In this regard, the reestablishment of the Natural Disaster Fund - which in essence is also a macroeconomic stabilisation fund - will not only improve resilience against natural disasters but also help bring down the debt ratio toward more prudent levels. Last but not least, securing broad support for implementation of the ongoing and upcoming revenue and expenditure measures will be essential to achieving all these goals.”